Alan Rubenstein: guiding the pensions lifeboat through stormy waters

What do you do when the investment bank you work at becomes the biggest
casualty of the credit crunch? Sharpen your golf swing and tend to the rose
bushes – or jump head first into the greatest pensions crisis Britain has
ever known?

"I know it might sound trite but I've been around the pensions industry for most of my career and wanted to give something back," says Alan Rubenstein, chief executive of the Pension Protection Fund (PPF). "When Lehman Brothers filed for insolvency, I heard that Partha Dasgupta [former PPF chief executive] was leaving and thought it would be the perfect role for me."

Alan Rubenstein, the PPF’s chief executive.

Mr Rubenstein joined the PPF in April after stints at Scottish Widows, Morgan Stanley and Lehman Brothers, where he was a managing director – responsible for creating the bank's Pension Advisory Group. He views his new job as one of the greatest challenges of his career.

The PPF was launched in 2005 to take over the pension assets and liabilites of companies that collapse with underfunded defined-benefit schemes. The pensions lifeboat currently pays the retirement benefits of 13,151 people across 101 schemes, at a cost of about £7m each month. These figures are expected to grow significantly over the next few months.

"We talk about the PPF as having a peverse business model," Mr Rubinstein says.

"We don't actually go out looking for customers, they look for us. Our immediate challenge is to pay the right people at the right time. The amounts involved are relatively small, but for many of these people it is the difference between them living in their own homes and having to live in other accommodation."

Experts at Hymans Robertson have warned that the PPF will become one of the largest pension schemes in the UK over the next five years, rivalling the size of the BT pension scheme, the Royal Mail pension plan and the Universities Superannuation Scheme.

John Ralfe, the independent pensions consultant, has added that the PPF could see its deficit double to more than £1bn following the high-profile collapses of telecoms group Nortel Networks, high-street retailer Woolworths and ironically Mr Rubenstein's former employer Lehman Brothers. At its annual results in October 2008, the PPF had a deficit of £517m and this year's figure is eagerly anticipated.

"I'm not sure whether all of these commentators realise, but the PPF is only one part of the protection framework. They also need to focus on what the Government is doing to stimulate the economy and on what the Pension Regulator is doing to improve scheme funding. Both of these will have a marked impact on the risks the PPF faces.

"It may sound strange, but we hope there is a time when we're out of a job because of what other people have done: a time when companies don't go bust – and if they do, their pension schemes are already well funded."

One of the PPF's most controversial roles is to charge all companies with final salary pension schemes an annual levy. The levy, which totalled £700m this year, is risk based, meaning companies with higher deficits and weaker balance sheets have to contribute more.

Industry experts fear this figure will soar in the future as more schemes seek entry into the PPF. They are also concerned that it will encourage more companies to close their final salary schemes, reducing the number left to pay the bill.

To combat this, the PPF has been proactive and created a group of senior business figures to devise a new formula for the levy. It has also announced that the total levy will be held at £700m next year to protect businesses suffering during the economic downturn.

"Depending on what happens in the economy we may have to put the levy up again", admits Mr Rubenstein. "However, in five to 10 years time we hope the levy will be a relatively small part of our income, with the rest driven by investments.

"We started off with a very simple asset base but over time we've become more sophisticated and are now one of the larger hedgers of risk in the UK pensions area. We already have assets of just under £3bn and my expectation is that our investment policy will continue to progress over time."

Mr Rubenstein acknowledges that the lagged effect of recession means corporate insolvencies are yet to reach their peak. This is likely to place the PPF under greater pressure over the next 12 months as the number of schemes entering continues to grow. Despite this, he is confident about the future of the PPF and insists everything is still well within budget.

"We don't have the same solvency requirements that insurance companies have and to my mind that's one of the great strengths of our model.

"There are potential scenarios that would lead us to run out of cash, but the issue is liquidity rather than solvency. From a liquidity point of view, we're paying out about just under £7m a month in benefits and have assets of about £3bn, so that is not an issue."

Although the PPF was set up under the 2004 Pensions Act, it is not underwritten by the Government. Mr Rubenstein says there are no plans to change this and that a bank-inspired bailout is not on the horizon.

"We aren't in a position where we need to come out and ask the Government for help. Let's not pretend there are not extreme scenarios out there that could see us run out of money, but that will not be happening in the foreseeable future. If it ever does, the Government will have time to work out what the right response is."

As the anniversary of Lehman Brothers' collapse draws nearer, Britain's pensions crisis is beginning to steal the limelight from the banking sector. News of companies struggling to cope with underfunded pension schemes does not bode well for the PPF, but Mr Rubenstein says he is focused on guiding it through what will prove to be a testing time.

"There's no doubt that this is an important job, and it's an honour to be asked to do it. But I'm confident about the future and sure that the PPF will be here long after I've moved on."

Personal File

Age 52

Family Married, two daughters

Home Surrey

Car BMW X5 (the diesel one)

Holiday Japan

Favourite bookFreakonomics

Favourite film Take your pick from Blade Runner, The Truman Show and Vicky Cristina Barcelona